GM's Supplier Relationships: Nowhere to Move But Up

Without question, General Motors takes the prize in Detroit -- and probably the world -- for being the least liked buying organization among suppliers. The tactics that have earned it this reputation over the years have ranged from simply paying invoices at a percentage of their face value -- mandating, not even demanding a price reduction after the fact -- to shopping supplier's proprietary designers to drive cost reduction. Even Wal-Mart -- who is also known as a ruthless negotiator -- is better liked by its supply base, because they at least share the savings with customers and practice the frugality that they demand from vendors. The other day, I was reminded of a Wal-Mart cheapness story by a friend in the supply chain business who spends quite a bit of time in Bentonville. He told me about a trip a Wal-Mart procurement manager took to a supplier's office during a cost reduction discussion, and remarked to his supplier after being told they could not lower their prices anymore: "Well, you could start by selling the marble floor in your lobby." The inside joke here is that Wal-Mart, unlike GM, has absolutely no-frills offices where vinyl furniture is considered a luxury (it costs more than cloth). GM, in contrast, is better known for the fact that its Director-level employees and above have historically traveled in luxury with a security entourage the size of a small army whenever they leave the United States.

But I digress (even though hopefully this contrasting example shows the type of hypocritical cost management behavior that cost GM its relationships with suppliers over the years). Today, GM is highly conscience of the need to change things. A recent CPO Agenda article from earlier this year shows why. In an interview with Bo Andersson, GM's CPO, we begin to see the makings of a kinder, gentler GM. And it is certainly a change in attitude. It was as if Mahmoud Ahmadinejad repented his past statements and proclaimed himself a lover of the United States and Israel. Well, maybe not that extreme, but it's close.

Consider how Andersson admits that "market dynamics" have changed that now require GM to "understand the [supplier] cost structure more and to work with suppliers to reduce costs, versus just saying we are looking for productivity." BTW ... "productivity" is code in GM speak for "lower your price or else." Andersson also admits that Rome was not built overnight: "It's not short term, it's a long march. It's performance-based, but it's also based on the idea that the deeper you work with the supply base ... We have realised that if you create more synergies to the supply base -- whether that's scale, helping them with their purchasing or taking some of the specifications away that make us uncompetitive -- there is much more to share. The big savings and the big breakthroughs take time to get. You need to stay on it and you need to be disciplined."

Certainly, GM has a long way to go (as do Ford and Chrysler) in learning how to balance competition and collaboration in their supply base like the Japanese. But Andersson's efforts are at least a start. Still, it would help if GM learned how to not only demand frugality like Wal-Mart, but to actively practice it internally as well -- even to the extreme. There's nothing like setting an example to prove a point to suppliers that work with you.